Lancashire decided against a new raise for third-party capital arm (LCM) at Jan 1: CUO Gregory

Although Lancashire Holdings did engage with insurance-linked securities (ILS) investors at the late and complex January 1st, 2023, reinsurance renewals, the specialty re/insurer decided against raising new funds at its third-party capital collateralised reinsurance underwriting arm, Lancashire Capital Management Limited (LCM).

In announcing its results for the full-year 2022 this morning, Lancashire revealed that its LCM division saw a dip in underwriting fees and profit commissions when compared with the prior year.

During the firm’s earnings call, held this afternoon, Paul Gregory, Lancashire Group’s Chief Underwriting Officer (CUO) and interim Chief Executive Officer (CEO) of LCM, commented on the firm’s third-party capital activities in light of the reduction in income.

“Obviously the fees we earn are backward looking. Some of it is impacted by timing through things like profit commissions, etc. So, it is not necessarily indicative of what’s happened,” said Gregory. “But you will recall in Q1 2022, we were very candid about that we were in a very difficult environment for raising funds.”

According to Gregory, there has and continues to be a lot of investor fatigue in the ILS universe, and this resulted in a significantly lower capital raise for LCM at the Jan 1st, 2022, reinsurance renewals when compared with prior years.

“Looking forward, for 2023, we did engage in a number of conversations. That fatigue in that world certainly hadn’t eased; in fact, I’d say it got somewhat worse.

“So, we did engage with both existing and new investors, but given the lateness and complexity of the renewal we had to make a call at one point as to whether we were going to continue, because we had to make decisions for inwards clients,” explained Gregory.

Ultimately, the company decided “not to do a raise for LCM” at the January 2023 reinsurance renewals. However, continued Gregory, “we’ll continue to assess opportunities, etc.”

“There were numerous opportunities for all parts of our balance sheet, and we were still able to service all of our inwards clients. So, that’s kind of where we stand on LCM,” he added.

Gregory went on to explain that with LCM, the firm typically raises funds for every renewal, but can also do this outside of the renewal periods as well.

“So, we didn’t write any new business at the first of January. Obviously, there are older years that remain live that will be managed, etc. But at the first of January, which has historically been the time when we’ve done our biggest raise, we didn’t raise any new funds,” he reiterated.

It’s clear from Gregory’s comments that the firm will continue to explore opportunities for LCM through the year, and the company has raised new funds at previous mid-year renewals.

As we’ve said previously, LCM’s structure gives it the flexibility to make so-called ‘special draws’ from investors as the year progresses, enabling it to respond to reinsurance market conditions and take advantage of attractive opportunities to raise additional funds and deploy more limit.